Deutsche Post to pump €2bn into German pension funds

Deutsche Post DHL is expected to issue EUR 2bn in bonds today to secure funding to fortify its employee pension funds. The German mail and logistics giant said today that it was taking advantage of “favourable” conditions now available to companies with a “strong credit quality” to secure long-term funding.

It plans to use an array of financing instruments with various terms to source the EUR 2bn, which it said would almost double the plan assets available for its German employee pension funds.

About half of the funds should come from a convertible bond with a seven-year term, which Deutsche Post will not be able to redeem for five years.

The company is also looking at conventional bonds with terms of eight years and 12 years to secure the remaining funds.

Pumping funds into the pension scheme should improve Deutsche Post’s cash flow, it said, since it will allow a larger share of pension payments to be made from plan assets and the returns of invested plan assets.

“This step makes sense in several ways,” said Larry Rosen, the Deutsche Post chief financial officer.

“We expect a positive effect on our earnings and an improvement in our cash-flow. At the same time, our employees benefit from the additional security of knowing that the financing of their pensions has been separated from the company’s business performance.”

The new pensions financing comes shortly after Deutsche Post signed up to a new credit ratings agency, Moody’s. The agency gives Deutsche Post a Baa1 rating, but Deutsche Post had its outlook raised to “positive” at the end of September.

It said the raising of its credit outlook was the result of continued improvement in its business performance.